As requested by President Obama in 2014, the Department of Labor Wage and Hour Division has issued a Final Rule in May 2016 that updates the Fair Labor Standards Act, with changes effective December 1, 2016. In part, the changes require that Executive, Administrative and Professional employees (EAPs) must earn more than $913 per week ($47,476 per year), lest the employer be required to pay overtime wages when the employee works more than 40 hours per week. Prior to this rule change, the Standard Salary level was $455 per week ($23,660 annually).
Under this rule change, employers can use Non-discretionary bonuses to satisfy up to 10 percent of the Standard Salary Level ($4,747 per year). As employers prepare to comply with the rule change, many are interested in finding out if their student loan repayment contributions are considered a Non-discretionary Bonus.
It is our opinion that student loan repayment contributions would be considered a Non-discretionary bonus when it is offered to a defined population of employees without being qualified upon performance.
– We believe that when an employer offers $100 per employee per month in student loan repayment to all employees who have been with the company for one day or more, the employer’s $1,200 in annual contributions could be included as part of the $4,747 in Non-discretionary bonuses that may count toward the Standard Salary Level.
– We believe that when an employer offers $100 per employee per month in student loan repayment to each employee who receives a 4.0 or higher on his/her performance review, the employer’s $1,200 in annual contributions would be considered a Discretionary bonus and could not be used to satisfy the Standard Salary Level.
Student loan repayment and the FLSA rule changes are both new. Employers are encouraged to do their own research, and seek legal counsel where appropriate, in order to determine the right way for their company to comply with FLSA.
The Department of Labor (DOL) has provided an overview of the May 2016 FLSA Final Rule Change here. The Department of Labor provides guidance on the definition of Non-discretionary bonuses here.
The following items are open:
1. For highly compensated individuals, fringe benefits are not counted toward income
2. For most employer-sponsored student loan repayment plans, employees may either enroll or decline to participate, but may not elect a cash alternative
These open items may lead the DOL to make a future determination that student loan repayment may not count toward the Standard Salary requirement.